BPU Approves Only Three Suppliers for Subsidies, Developer That Pushed Hardest Is Not on the List

Despite an early jump on the competition, LS Power's proposed West Deptford plant didn't make the cut.

A state-retained consultant has recommended a trio of developers to build three new power plants, potentially funded by lucrative subsidies from ratepayers.

Ironically, the developer that lobbied earliest for the pilot program was not among those chosen.

All told, nine power suppliers were vying to be selected by the New Jersey Board of Public Utilities (BPU) as part of a controversial program that aims to lower energy bills for residential and business customers by encouraging new generation to be built in New Jersey.

The tentative recommendation, expected to be acted on by the board in two weeks, could result in 1,948 megawatts of new generating capacity being built, just shy of 2,000 megawatts envisioned in the bill authorizing the pilot.

The outcome of the bidding procedure was surprising in several ways. LS Power LLC, the developer that had pushed hardest for the bill was not selected. Its project had been backed by Senate President Stephen Sweeney (D-Gloucester), whose district the plant would have been built in, and which would have created hundreds of temporary construction jobs.

PSEG Power, which had initially sought to be included, backed out at the final stages, even though it is a subsidiary of Public Service Enterprise Group, a company used to getting its way in Trenton.

Many Questions

Many questions remain about the initiative and what impact, if any, it will have on customers’ bills. In part, that is because the program is being contested on a number of fronts by some of the country’s biggest power suppliers, including in federal court and before the Federal Energy Regulatory Commission.

It also is uncertain whether guaranteeing a stream of ratepayer subsidies to the developers will wind up driving down capacity prices, which have soared in recent years because of congestion on the power grid here and concerns about reliability. The state has not yet disclosed how much those subsidies will be, but an independent market monitor has projected they will drive down capacity prices by $2 billion.

That is far more than what customers would pay over the 15 years of the pilot program, according to advocates. It also underscores why the program is being challenged by those power suppliers, who greatly increase their bottom lines by the steep capacity prices.

In making a tentative recommendation to the state agency, the Boston-based consultant, Levitan & Associates concluded that the three projects "offers significant economic benefits… over the relevant planning horizon for New Jersey’s electric customers." However, the consultant did not quantify those benefits, although he said there also would be environmental benefits by replacing older, inefficient plants with new, more efficient and less polluting plants fired by natural gas.

And the Winners Are...

The bidders being recommended to be included in the program were: the Newark Energy Center, a 625-megawatt plant in Newark being developed by Hess Newark LLC; the Old Bridge Clean Energy Center, a 660-megawatt facility being developed by Princeton-based NRG Energy; and the Woodbridge Energy Center, a 663-megawatt plant in Woodbridge being sponsored by Competitive Power Venture Suppliers (CPV) LLC.

Perhaps the biggest surprise of the selection process is the omission of LS Power, which wanted to build a natural gas-fired plant in West Deptford. The bill enabling the pilot was originally drafted specifically with language that would have led to its selection in the program, but the measure was amended after critics denounced it as a sweetheart deal for the company. Ironically, the other company pushing the bill from the outset is one of the recommended developers, CPV.

BPU officials declined to answer questions about the process, but the consultant’s report noted that three of the initial 34 projects that submitted prequalification applications withdrew, another 21 were deemed ineligible for the pilot, mostly because they were tied to existing generation plants. In the final review, the projects were narrowed to three after other developers were excluded because their pricing options did not follow the proscribed rules drafted for the process.

LS Power did not respond to a request for comment on the process. In addition to LS Power, PSEG Power also withdrew from the bidding, according to Michael Jennings, a spokesman for the Newark company.

"After careful consideration regarding a potential bid, PSEG decided that the overall risks and uncertainties, including market prices that do not support a need for a new combined-cycle generation outweighed the potential shareholder benefits," he said.

Legal Challenges

Its affiliate, Public Service Electric & Gas, is among the companies challenging the law in federal court. Yesterday at a hearing on the program, one of its executives, Tony Robinson, asked the state agency to hold off making a decision on the pilot until after the Federal Energy Regulatory Commission (FERC) rules on challenges pending before it, a decision expected to be handed down before April 13.

The state agency has scheduled a hearing on March 29, when it is expected to act on the consultant’s final recommendations.

Whether any plants will be built remains to be seen. Paul Fremont, an analyst at Jefferies & Company who has followed the controversy, insists it won't happen. "We believe none of these projects will be built with the subsidies contemplated under the New Jersey legislation," Fremont said.

Division of Rate Counsel Stefanie Brand, however, said the state has no option but to move forward. "We could be facing a crisis unless we build new generation," Brand said.